Do Dividends Matter?

reinvest dividends

My grandma and I never got along.

My dad’s mom to be exact, let’s call her Dorothy.

Two years after my dad was born she gave him up and moved from Kenosha to Chicago. My grandpa didn’t want him either.

Abandoned and unwanted.  

When my dad went to my grandmas funeral and introduced himself as Dorothy’s son, the most common response was, “I didn’t know Dorothy had a son.”

Two years before my grandma died I called her from a payphone in Midtown Manhattan. It was 1993. I asked her,” why didn’t you ever love my dad?”

Now, you have to understand. I saw my Grandma all the time growing up. And everytime I saw her, even as a little kid, I could feel the apathy towards me, my two sisters, my mom, and most of all my dad.

When I asked her why she never loved my dad, She started crying and so did I.

She never answered the question.

Who took my dad?

My Great Grandma and my Great Aunt Gladys.

Finally he had someone in his corner.

Having someone in my dad’s corner looked like two loving women providing stability, care and the right thinking.

Let me show you what it really looks like when you have someone in your [financial] corner. They don’t necessarily have to do a lot of things. Just the right things.

Someone in your financial corner has to show you clarity, consistency, and simplicity.  And have your money’s best interest as their best interest.

I have one chart that clearly shows what “having someone in your corner” looks like in the investment world.

Let me show you.

The first price chart below is the S&P 500 Index.

If an investor just bought that index he or she would have grown their money 575% from 1993 until this past Thursday, January 25th 2018.

I consider this approach the third most powerful investment approach on the planet. No trading. No looking. No stories. No nothing. Just keep buying and holding. If you want to grow and protect your money. Start with the index.

Buying the stock market grows people’s money better than buying the bond market, the cash market, the real estate market, and the commodity market.

There’s no comparison.

85 Years of Market Returns

Stocks = 9.6% annual return

Bonds = 4.9% annual return

Cash = 3.5% annual return

Real Estate = 3.8% annual return

Commodities = 2.5% annual return

Just below is the price chart of the S&P 500 index. It grew investors money 575%. And the investors effort? Almost nothing.

S&P 500 INDEX Price chart


Next look at the price chart below. It looks almost exactly like the one above, BUT there’s one very small difference.

It’s literally so small people ignore it. BUT it produces different futures for those that do notice.

The price chart below is the S&P 500 Index with dividends reinvested (same time frame).

But instead of an investors money growing 575% this one change grew an investors money 1,023%. Almost [but not quite] twice as much.

This is the second most powerful investment strategy on the planet.

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The investor didn’t work any harder. Pray any harder. Read any longer. Or pay any more. They just made one small shift.

SP5OO with dividends reinvested


One small change can shift someone’s entire life.

Of course, there’s still one glaring problem … actually two.  It’s those two drops of fifty plus percent.  One starting in 2000 and the other starting in 2007.

When I took my deep dive into finding out what really worked in investing in the 1990’s, I kept noticing that when the stock market fell by more than 5%, investors almost always started moving money into the fixed income market (bonds/cash).

This got me thinking.

If I sat at the intersection of the Fixed Income Market and the Stock Market, how would I measure the flow of money from one to the other. That’s what I showed you last week.

The difference between your money growing 575% or 1,023% is a different life. $100,000 becomes $575,000 by doing almost nothing. OR an investor could do one VERY small thing and have $1,023,000.

Isn’t that amazing?

A click of a button one time. And viola, an extra $448,000.

What if we could extend the “investing-might-actually-be-powerfully-simple” idea and say that most people’s lives would be better if they avoided the majority of those two 50% market drops.

Right. Not losing half your money twice in 10 years (here and here) might be a good thing. You already know that. No one needs to make a case for not losing half twice. In. Nine. Years.

That’s not the point I want to make.

The point is the price chart below with those green and red dots.  

green and red dots

Do you see the green dots? Those represent when my 2-Question Strategy’s first question indicated to GET IN and STAY IN.

And then do you see those red dots? Those represent when my 2-Question Strategy’s first question indicated to get GET OUT.

Those dots represent two powerfully simple ideas.

The first: Stay in the stock market most of the time. Then second: Get out when the relationship between stocks and bonds tells you to get out via the 2-Question Strategy.

“The biggest expense for investors, especially those over the age of 50 is the time is takes to break even after a big drop in the market. “

When an adviser or a “pick of the month” newsletter company allows a market drop to enter your life that then takes 10 or 15 years to recover from… Well… that’s not being in your corner.

In the price chart below, it took the S&P 500 with dividends reinvested (the one that got a 1,023% return)  13 years to get back to the starting line. So you know the price chart below also includes the effect of inflation, which over the time of the chart was 2%.

Inflation. Breakeven

Waiting 13 years to get back to the starting line can feel like forever. And if someone just bought the index without reinvesting dividends…? It would have taken 17 years to breakeven.

Loss has to be measured in price and time.

And “time loss” is the one thing big-box advisers don’t mention. Yes, the market has always come back. Please stop telling us that. It doesn’t help if it takes 17 years to get us back to the starting line.

The point I want to make is that the difference between having $575,000 or $1,023,000 can be measured by one click.

And the difference to avoiding two 50% falls can be measured in a simple relationship between stocks and bonds.

Simple can be powerful. But it’s often hard to see when you are getting yelled at daily by the noise machines.

So what can the investor do? Ask better questions. Questions about the relationship between the stock world and the bond world.

Questions that protect and grow your money. That’s why I created the 2-Question Strategy Investment Strategy. Doing what’s best for someone’s money can be simple. Consistent. And transparent.

My great grandma and great aunt made a simple choice to be in my dad’s corner when no one else would.   One small act of kindness that changed my dad’s life.

In Your Corner,

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RC Peck, CFP

P.S. Will your wife [or husband] know what to do with your investments if you were to die today? Could they figure out your approach? Could your kids? Could anyone?


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